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FDI: The Neglected Twin of Trade

— A Substitute or a Complement?

  • Chapter
The Political Economy of Trade Integration

Part of the book series: Contributions to Economics ((CE))

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Abstract

Chapter III asks whether foreign direct investment (FDI) is a substitute or complement for international trade, since both possibilities are modelled in the theory of multinational firms. A gravity model estimates the cumulative effect for a sample of 63 countries and suggests that FDI inflows reduce overall trade and in some cases deteriorate the trade balance. Three channels are identified in case studies of Spain, Mexico, and Thailand but need to be quantified in further research. Predictions should not be based on the gravity model because it appears structurally unstable.

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Authors and Affiliations

  1. International Monetary Fund, 700 19th Street, N. W., 20431, Washington, DC, USA

    Dr. Oliver Fratzscher

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  1. Dr. Oliver Fratzscher
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© 1996 Physica-Verlag Heidelberg

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Fratzscher, O. (1996). FDI: The Neglected Twin of Trade. In: The Political Economy of Trade Integration. Contributions to Economics. Physica-Verlag HD. https://doi.org/10.1007/978-3-642-61490-3_3

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  • DOI: https://doi.org/10.1007/978-3-642-61490-3_3

  • Publisher Name: Physica-Verlag HD

  • Print ISBN: 978-3-7908-0945-9

  • Online ISBN: 978-3-642-61490-3

  • eBook Packages: Springer Book Archive

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